The market value of Galleon's debt and equity capital totals $180 million, 80% of which is equity related. An analysis conducted by the company's finance department revealed a 7% after-tax cost of debt capital and a 10% cost of equity capital. On the basis of this information, Galleon's weighted-average cost of capital:
A. is 7.6%.
B. is 9.4%.
C. is 8.5%.
D. cannot be determined based on the data presented because the cost of debt capital must be stated on a before-tax basis.
E. cannot be determined based on the data presented because the cost of equity capital must be stated on an after-tax basis.
Answer: B
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